PS4 - Problem Set #4 Business Finance (03075 & 03085)...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set #4 Business Finance (03075 & 03085) Please note that you do not have to submit your answers. They will not be graded. But, similar questions will appear in the quiz. Answer keys will be uploaded at Blackboard soon. 1. ( NPV & IRR ) Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 15 percent. Project A : Server CPU .13 micron processing project (by shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPU’s) Project B : New telecom chip project (Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a lot of upfront capital, but success of the project will lead to large cash flows later on) Year Project A Project B 0 -$100,00 -$200,000 1 50,000 60,000 2 50,000 60,000 3 40,000 60,000 4 30,000 100,000 5 20,000 200,000 a. (2 point) Which project would one accept if one uses the IRR rule? [
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/23/2009 for the course FIN 374C taught by Professor Goldreyer during the Fall '08 term at University of Texas at Austin.

Page1 / 2

PS4 - Problem Set #4 Business Finance (03075 & 03085)...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online